Over the years, you’ve probably been presented with plenty of quirks, tricks, or gimmicks that claim to turn conventional business wisdom on its head and secure you an unforeseen profit boost in the process.
You’ve also likely been generally skeptical or suspicious of such claims in the past – and rightfully so. Like in all aspects of life, success in this industry is generally assured not by a trick or gimmick, but by a lot of hard work, clear-headed decision-making, and commitment to continuous improvement.
That being said, the tip I have to offer you is not a quirk or a trick, but simply an actionable insight that the data has proven to be sound advice.
So, what’s the method?
Boosting Your Gross
Simply this: round up your retail parts pricing to end in $X.99. For example, if the retail price of the part is $7.50, round it up to $7.99. (Pro tip: Check with your DMS provider on how to do this.)
Why do this?
Well, because it works. There’s even a name for it: psychological pricing, or charm pricing. Several studies have shown that customers are more likely to purchase a product with a $.99 ending – called “odd pricing” in the research literature – instead of an even dollar amount. 1
The simple explanation is that, to our always-in-a-hurry-brains, the most important number in a price is the one on the far left: the whole dollar amount. Thus, unless we’re stopping long enough to give the issue serious thought (not usually the case in something as automatic to our brains as scanning a series of numbers), $2.99 is always significantly “lower” than $3.00. It just is.
This, of course, is also a pricing structure customers are used to. In almost any retail store you visit, many of the prices use the $.99 ending for most of their products.
Understanding the Impact
What financial impact might you see from rounding your parts prices up to the nearest $.99?
Most dealerships will probably see an average lift in profit of about $0.49 per part sold, depending on your base pricing setup.
You can do the math for your own dealership, but for a medium-sized store selling 5,000 retail parts pieces per month, that’s an extra $2,450 in profit per month, with no changes to your work processes or customer volume.
Little tweaks to the way you do business can open up unexpected growth opportunities.
Sometimes taking a fresh look at your processes and not being afraid to shake things up or think outside the box can yield unexpectedly significant results. Are you ready to bring an attitude of continuous innovation and process improvement to your dealership each and every day?
1 Marketing Bulletin. “The Widespread Use of Odd Pricing in the Retail Sector.” Holdershaw, Gendall, and Garland.
Author: Jason Sideris
Jason Sideris is the director of Product Planning for Fixed Operations at Reynolds and Reynolds. Through more than 20 years experience working in the automotive industry, Sideris has gained a deep understanding of how innovative technology and solid processes come together to enable operational excellence for dealers and improve the customer experience with the dealership.